Question

Swifty Leasing purchases and then leases small aircraft to interested parties. The company is currently determining the required rental for a small aircraft that cost $1,250,000. If the lease is for 20 years and annual lease payments are required to be made at the end of each year, what will be the annual rental if Swifty wants to earn a return of 8%?

Group of answer choices
A.$121,444.52
B.$96,759.60
C.$127,315.26
D.$116,587.36

Answer 1

To calculate the annual rental for the small aircraft, we need to use the concept of Present Value (PV) and the formula for calculating the annuity payment. The annual rental is $116,587.36. Therefore, the correct answer is Option D.

Step-by-step explanation:

To calculate the annual rental for the small aircraft, we need to use the concept of Present Value (PV) and the formula for calculating the annuity payment. The formula for annuity payment is:

Payment = PV * (r / (1 - (1+r) ^ -n))

Where PV is the present value, r is the interest rate, and n is the number of years. In this case, the present value is $1,250,000, the interest rate is 8% (0.08), and the number of years is 20.

Using the formula, the annual rental comes out to be $116,587.36. Therefore, the correct answer is Option D. $116,587.36.